What is your monthly cash flow?

Managing your cash flow is crucial in personal financial management. One key goal to achieve is generating enough passive income to sustain our standard of living. That is also known as achieving financial independence. Financial independence is in the level of sufficiency while financial freedom is in the level of abundance – more than enough.

We were not meant to serve money. Money was meant to serve us as loyal personal assistants and employees. You can’t ask for a more hardworking employee. That does not mean that having a job is wrong. Your job should be a stepping stone towards your dreams; that is if the job is not your dream.

It is your cash flow that determines the state of your financial health. It is important to keep an eye on what actually comes in monthly from other income sources. Most of our expenses are in monthly cycles and if you have been on salary income all your working life, you are used to planning your life around your monthly salary. It makes sense therefore when developing your alternative sources of income to make provision for monthly streams of income to cover your monthly expenditure.

It is not all assets that generate monthly income. For example, most landlords in Nigeria collect rent annually. Dividends from shares come once a year, twice for companies that issue an interim dividend. Treasury bills come in 3 tenors of 91, 182 and 364 days. Bonds have even longer tenors. If most of your passive income comes from assets with this cash flow pattern, you will not be getting the monthly cash flow you need. When your money will come in chunks and may be tempted to mismanage it. If you need income monthly, you need to have a plan for monthly income.

The quest for higher returns

The quest for higher returns has got a lot of people into trouble. Many have wiped out their savings to sink into half baked schemes. There is nothing wrong with higher returns. We all need higher returns. There is something wrong with breaking one leg of your financial table to try to build another. The money hardly returns to source.

A lot of folks want to start a business, trade in stocks, forex, invest in real estate etc without securing their bases financially. If you are married with children, please don’t. If you lose your job while you are at it, you are in a big mess. Secure the home front before you start that adventure. Don’t give your wife a heart attack. If you were still living with your parents, you can afford grand dreams of ruling the world, and if it fails, you can always run back to Mummy. If you are the breadwinner, your children should not suffer because of your business misadventure. Put in place a passive cash flow that will sustain the home front while you battle it out in the market place, buying and selling, trading in forex, investing in real estate, running a business or whatever you enjoy doing. If you are in business already, quickly plough back your profits to build a solid financial base both for yourself and the business. You need to learn how to crawl before you run.

Cash flow is king

Build up income sources that are monthly. Apart from easing your monthly cash flow, it will give you leverage to invest in other areas. A good example is real estate. This is an area you have to learn how to borrow to invest. If you want to save and buy land, your options will be limited to cash available to you. In real estate, location is of paramount importance, especially if you are building to rent.

A good location comes with a price. Saving to buy investment property takes time. The asking price of the property may go up faster than your ability to save up. By the time you save up the original asking price, the price may have doubled, sending you back to the drawing board. That is why borrowing (other people’s money OPM) gives you leverage in acquiring property. However, when you take a mortgage, you need to show the bank your monthly cash flow.

It takes wisdom to build a solid financial structure. Having enough liquidity makes your life very simple and gives you more options. If all your liquidity comes from your job, you are taking a risk as the company does not belong to you. With proper cash flow management, you are free from the tyranny of financial anxiety and the stress that goes with it. You can come and go as you please as your life does not depend on your job.

Cash flow is the lifeblood of personal finances. It determines your assets and liabilities. When you focus on cash flow, you begin to see ways to generate it and manage it in a way that works for you. A good place to start is to assume your salary is no longer there. What do you do?

You don’t enrol in a defence academy when war breaks out. You prepare for war in the time of peace. Don’t wait until you no longer have your job or business. Put your house in order for you don’t know when the next storm will hit.